Nest egg investors and institutions feel the pain

Bradford & Bingley's small shareholders will bear the brunt of the financial pain inflicted by the nationalisation of the buy-to-let lender.

The latest B&B share register reveals that more than a quarter of the company's stock is held by retail investors, many of whom acquired their shares when B&B gave up its mutual status as a building society and became a listed bank in 2000

B&B customers were each given a parcel of 250 shares worth more than £600 at the 248p flotation price. More than one million carpetbaggers who had supported a demutualisation campaign immediately cashed in their windfall. But others bought shares to create a long-term nest egg.

The shares, which hit a peak of 536p in 2006, have been in freefall for 15 months and are now virtually worthless.

Other losers are the financial institutions which were encouraged to back B&B's £400m rescue rights issue in the summer. Barclays, Citigroup, RBS, HBOS, Lloyds TSB and Standard Life notified B&B last month that they had collectively acquired nearly 40% of the bank's stock after investors shunned the issue. The rights issue closed with the shares only marginally above the 55p rights price.

The share register shows that many of those institutions and others which supported the rights issue are among the company's biggest shareholders.

The £400m raised by the rights issue was insufficient to rescue B&B and that money is all but lost.

David Cumming, head of UK equities at Standard Life Investments, said: "As long-term shareholders we stood by the company and supported its recent fund raising. This regrettably did not lead to the desired outcome."

Legal & General, which also backed the rights issue, said: "We are disappointed that a well capitalised bank which in more normal circumstances might have been expected to trade through its current difficulties has been nationalised."

Last night the UK Shareholders' Association said it opposed the nationalisation and raised concern about the rights issue. "Did the prospectus for that rights issue mislead the investors in it and the underwriters? We intend to ask the Financial Services Authority to conduct a full investigation of the sequence of events."